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Home > News and Publications > The demise of Overend Gurney - Quarterly Bulletin 2016 Q2 pre-release article
 

The demise of Overend Gurney - Quarterly Bulletin 2016 Q2 pre-release article

05 July 2016

Press release


150 years ago, Overend Gurney, the largest discount house in the City of London, suspended payment. The Times immediately christened this date ‘Black Friday’ due to the financial panic that ensued. The failure of Overend Gurney was caused by a change of business model, whereby it entered the lending business but with poor lending practices and insufficient risk management.

'Siege of the office of the bank Overend, Gurney and Co., Lombard Street, London' Hobblethwaite, M

Source: Hobblethwaite, M, ‘Siege of the office of the bank Overend, Gurney and Co., Lombard Street, London’, L’Illustration, Journal Universel, 19 May 1866.

The Bank of England, a private bank at the time, refused assistance to Overend Gurney but supported the refinancing of viable banks and brokers by depleting its own reserves. Over a ten-day period, the bill discount rate (the Bank Rate of the time) was increased four times to 10%. Financial stability returned in the following months.

This lending by the Bank of England led to valuable debates around optimal central bank lending and limited liability and inspired Walter Bagehot’s principles for lender of last resort. There are several lessons which remain relevant today.

Read the full article

This article was written by Rhiannon Sowerbutts of the Financial Stability Strategy and Risk Directorate, Marco Schneebalg of the Major UK Deposit Takers Supervision Directorate and Florence Hubert of the Monetary Analysis Directorate.

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